Fitch Takes Various Rating Actions on 19 Classes from 3 SF CDOs

Fitch Ratings has taken the following actions on 19 classes from three structured finance collateralized debt obligations (SF CDOs):

Palisades CDO, Ltd.:

--$17,999,142 class A-1A notes upgraded to 'Asf' from 'BBBsf'; Outlook Stable;

--$295,068 class A-1B notes upgraded to 'Asf' from 'BBBsf'; Outlook Stable;

--$88,500,000 class A-2 notes affirmed at 'CCsf';

--$78,000,000 class B-1 notes affirmed at 'Csf';

--$6,000,000 class B-2 notes affirmed at 'Csf'.

--$17,277,659 class C-1 notes affirmed at 'Csf';

--$23,359,123 class C-2 notes affirmed at 'Csf';

RFC CDO II Ltd.:

--$1,081,202 class A-1 notes upgraded to 'AAsf' from 'Bsf'; Outlook Stable;

--$39,000,000 class A-2 notes affirmed at 'Csf'

--$6,000,000 class B-1 notes affirmed at 'Csf';

--$6,000,000 class B-2 notes affirmed at 'Csf'.

--$14,760,210 class C notes affirmed at 'Csf';

--$3,962,219 class D notes affirmed at 'Csf'.

--$4,222,558 class E notes affirmed at 'Csf'.

--$5,203,116 class F notes affirmed at 'Csf'.

Glacier Funding CDO II, Ltd.:

--$68,138,017 class A-2 notes affirmed at 'Dsf';

--$65,578,660 class B notes affirmed at 'Dsf';

--$24,427,549 class C notes affirmed at 'Csf'.

--$7,181,585 class D notes affirmed at 'Csf'.

Fitch does not rate the Preference Shares in Glacier Funding CDO II, Ltd., the Preference Shares in RFC CDO II Ltd., or the Subordinated Interest Notes in Palisades CDO, Ltd.

KEY RATING DRIVERS

The upgrade of the class A-1A and A-1B (collectively, the class A-1) notes issued by Palisades CDO, Ltd. (Palisades) is attributed to the increased credit enhancement (CE) available to these notes following transaction's deleveraging over the last year. Since Fitch's last review, the class A-1 notes received approximately $21.5 million, or 55.0% of their combined previous balance, in principal amortizations. The CE available to this class has subsequently increased to 89.7% from 80.2%. According to Fitch's cash flow model (CFM) analysis, the class A-1 notes are now able to pass the 'Asf' rating stress in most of the modeling scenarios. Although the notes fail to maintain this threshold under two rising interest rate scenarios, the risk of any shortfall is limited by the classes' short expected remaining life. The Outlook Stable reflects Fitch's expectation of a stable performance until the notes are fully paid down.

Although the class A-2 notes have also benefited from the ongoing amortization of the capital structure, with the current CE level increasing to 40.0%, default remains probable as this class is not expected to withstand losses projected at the 'CCCsf' rating stress under Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis.

The CE available to the class B-1, B-2, C-1, and C-2 notes is exceeded by the expected losses from the portfolio's distressed collateral ('CCsf' and below). For these four classes, Fitch continues to view default as inevitable.

The upgrade of the class A-2 notes of RFC CDO II Ltd. (RFC II) reflects the increased CE available to the notes and Fitch's expectation that this class will likely be paid in full within the next 12 months. Since the last review in May 2014, the class A-2 notes have amortized by $16.5 million, or 93.8% of their previous balance. Currently the notes are passing the 'AAAsf' PCM RLR; however, the rating is capped at 'AAsf' due to a high concentration of defaulted assets. As per the March 2015 trustee report, over 90% of the current underlying portfolio is considered to be in default. The Outlook Stable reflects Fitch's expectation for this class to fully amortize within the next year.

The class A-2 through class F notes are affirmed at 'Csf' since their respective CE levels continue to be significantly exceeded by the expected losses from the distressed assets.

Fitch has also affirmed the ratings on four classes of notes issued by Glacier Funding CDO II, Ltd. (Glacier II). The class A-2 and class B notes are non-deferrable classes which began missing their accrued interest in June 2011, when the transaction accelerated. These missed interest payments constitute a payment default. Since the acceleration, all proceeds have been diverted to redeem the class A-1 notes, which paid in full on the February 2015 payment date. Although the class A-2 notes began receiving their accrued interest on the same payment date, the amounts due continue to exceed the interest collections, exposing the notes to risk of interest shortfalls in the future. As such, Fitch affirmed the class A-2 notes at 'Dsf'. The class B notes are not expected to receive any payments until the principal of the class A-2 notes is fully repaid.

The class C and class D notes remain significantly undercollateralized, indicating that default continues to appear inevitable at or prior to maturity.

This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using Fitch's Structured Finance Portfolio Credit Model (SF PCM) to project future default levels for the underlying portfolio. For the class A-1 notes of Palisades CDO, these default levels were then compared to the transaction's breakeven levels generated by Fitch's cash flow model under various default timing and interest rate stress scenarios.

RATING SENSITIVITIES

Negative migration, defaults beyond those projected, lower than expected recoveries, as well as increasing concentration in assets of a weaker credit quality could lead to downgrades for the class A-1 notes of Palisades.

The class A-2 notes of RFC II have limited rating sensitivity given their CE levels and the likelihood for this class to fully amortize within the next year.

Classes already rated 'Csf' and 'CCsf' have limited sensitivity to further negative migration given their highly distressed rating levels.

The information used to assess these ratings is from the trustees reports.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (March 31, 2015);

--'Global Rating Criteria for Structured Finance CDOs' (July 16, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984964

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